Common Mistakes when Negotiating a Settlement Agreement

I know from the experiences my clients describe that being put in the position of negotiating a Settlement Agreement with your employer can be difficult.

For some of my clients, their personal circumstances mean that they are utterly delighted to be agreeing a termination package with their employer and are extremely happy to sign a Settlement Agreement ending their employment relationship. For other clients, the offer itself has come as a shock and can be completely out of the blue. They describe going in to work as normal and then a few hours later, leaving their employer’s premises with a document which will bring to an end all their job security and their plans. Unfortunately, it is that shock and disbelief which often prevents employees from properly negotiating to get the best deal possible. It can feel matters are progressing with indecent haste and processing all that is happening can take priority over negotiating.

What is a Settlement Agreement?

Essentially, a Settlement Agreement is a contract between you and your employer. Usually, you will be agreeing to give up your security of employment and all of your employment rights and claims. In exchange, your employers will be offering you an amount of money and, ideally, a number of other incentives for you to sign the Settlement Agreement. The Settlement Agreement is an extremely important document. This makes negotiating the terms you want and making sure you are happy with the deal absolutely paramount. Once the Settlement Agreement is signed and the ink is dry, the deal will have been done.

Obviously, if you have been offered a Settlement Agreement we would hope you would contact Lincs Law Solicitors so that we can advise and assist you. However, if you have decided to negotiate a Settlement Agreement itself, there are some things you should consider when engaging with your employer.

Do not be rushed

It is not always possible to prepare for these types of meetings. Very often, you will be called into a small room with a Manager and Human Resources to be told that your services are no longer required. One client described in detail how an envelope was just slid across a table to him and his employer wanted him to say there and then whether he agreed the terms. Clearly this was impossible for him. He was so distressed, he was barely taking in what was being said and certainly did not have the opportunity to digest and fully consider the 14-page contract he had just been handed. If you find yourself in such a position, do not commit to anything other than saying you will take some independent legal advice. Do not agree the numbers, do not agree the terms, simply state that this is something that you will need to consider.

Employers do want to rush these types of contracts through. However, the ACAS Code of Practice on Settlement Agreements recommends that employers give employees at least 10 days to consider a Settlement Agreement. This is not a binding legal requirement; however, it is something that you should refer your employer to as being best practice.

You should then take the time to think carefully about what you might want from a Settlement Agreement. Be realistic about your expectations for the Settlement Agreement itself and, also, how you think matters will progress in the event you refuse the Settlement Agreement. You will be under no obligation to sign. The choice of whether to sign the Settlement Agreement is entirely yours. However, amongst the many other things you need to consider is what next steps you might want to take to protect yourself if you refuse the Settlement Agreement offer.

What claims are you giving up and how much are they worth?

Your employer will want to offer as little compensation as possible for you to sign a Settlement Agreement. By signing such an agreement, you will waive and settle all employment rights and claims that you may have. This will mean that you will not be able to bring a claim against your employer at the Employment Tribunal in the future.

When considering the offer that has been made to you (and considering negotiating for more) think about how much your Employment Tribunal claim might be worth. Take into account all factors in addition to the value of the Employment Tribunal claim itself. For example, are you being threatened with redundancy and offered a slightly enhanced redundancy payment? If you were to refuse the offer made to you, could you be still employed for two or three months whilst your employer went through the redundancy process. Put simply, could you be financially better off simply going through the redundancy process and collecting your payment WITHOUT giving up your employment rights and claims in a Settlement Agreement. Properly assess your financial situation and take into account any processes your employer would need to go through, plus any Employment Tribunal award for your claims to give you a true value of your situation. Only then will you be able to assess whether the amount of compensation offered to you is reasonable.

Again, at Lincs Law Solicitors we go through these exercises with our clients so that they can make an informed decision about whether to accept the Settlement Agreement that has been offered to them. Very often the employer has offered compensation which is an approximation of the value of any Employment Tribunal claim, but has failed to take into account payments an employee would have received whilst they undertook any redundancy, disciplinary or similar procedure.

A Settlement Agreement is not just about the money

Whilst the amount of compensation will be a significant consideration, the final Settlement Agreement is rarely confined to just monetary issues. It is a contract and over and above the money, there will be things you might want to assist you finding new employment in the future.

Common requests I have made on behalf of my clients are for: –

An agreed reference.

An announcement/circular to colleagues about their leaving to avoid any suggestion of wrongdoing on my client’s behalf.

Removal or variation of restrictive covenants.

Undertakings in respect of any statutory positions held by my client.

Removal of my client’s name as a responsible officer of the employer etc.

All circumstances will be slightly different. Whilst the money is important, there are other considerations and you should take the opportunity whilst negotiating your Settlement Agreement to put yourself in the best possible position to start a role with a new employer.

Can Lincs Law Help?

If you have been offered a Settlement Agreement we would be delighted to help. We always meet with our clients and go through the Settlement Agreement in detail. We want to ensure that our clients are fully aware of what has been offered to them and are able to make an informed decision about whether they wish to sign. Part of making that informed decision is a consideration of what claims they may have at the Employment Tribunal and how much those claims might be worth. If the offer made to you by your employer is fair and reasonable, we will tell you and you can be reassured should you wish to sign. Alternately, if we do not think the offer made to you is fair, we will explain why so you know exactly where you stand. To discuss your Settlement Agreement please ring 01522 539501. Alternatively, for more information about Lincs Law Specialist Employment Law Solicitors, please visit our website at lincslaw.co.uk.

Sally Hubbard

Sally is a Lincolnshire girl through and through and has lived in Lincoln her whole life (apart from a brief spell when she went to university in Nottingham, but we don’t talk about that). She began her career with Lincolnshire County Council qualifying as a solicitor in 1996, which she believes now makes her "vintage".

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